WASHINGTON — Michael Teahan, like his father, mother, and uncles before him, is a small business owner. The 52-year-old has spent most of his adult life running his own businesses: a restaurant, a coffee bar and various companies involved in the espresso machine business.
“I was the only person in my family to go to college, because that’s not what we did — we all opened up businesses,” Teahan says. “For some people, that’s a big hurdle … for us, it was like having lunch.”
Teahan currently operates Espresso Resource, a company that imports espresso machine parts from Europe to sell to U.S. restaurants and coffee shops. And he’s doing very well for himself: The two-man operation clears about $1 million a year in total sales, Teahan says — enough to secure himself annual income in excess of $250,000.
That makes Teahan one of the few small business owners to actually benefit from the Bush administration’s tax cuts for the wealthy. He says the cuts save him about $12,000 a year, compared to what he paid before they were enacted. But as debates over the federal budget deficit have intensified, Teahan has found the political discussion increasingly divorced from the reality of his own experience as a small business owner.
Tax cuts for the wealthy, according to Teahan, will do nothing to bolster his firm. They won’t effect his hiring decisions, they won’t encourage him to buy new equipment or help him move into a bigger warehouse. He says all of those decisions — the nuts and bolts of actually running a small company — depend on the his customers’ economic conditions, not his own personal tax rate.
“What we do in business, how we spend our money, how we allocate our resources — that has very little to do with tax policy,” Teahan says. “I map my business based on my customers, and what my customers want to buy, and what they can afford to buy.”
It’s a common complaint from small business owners. While congressional Republicans and entrenched corporate lobbying groups like the U.S. Chamber of Commerce — which is holding a Wednesday meeting on small business priorities — and the National Federation of Independent Business (NFIB) have been pushing hard to preserve the Bush tax cuts for the wealthy by touting the interests of small firms, much of the small business community is demanding that those very tax cuts be repealed. The tax breaks for the wealthy will add $700 billion to the debt over the next 10 years, according to the White House’s Office of Management and Budget. And many small firms say that money would be better spent on direct aid to the middle class.
“We are fed by our consumers, not by our tax breaks,” says Rick Poore, owner of Designwear, Inc., a screen-printing business based in Lincoln, Neb. “If you drive more people to my business, I will hire more people. It’s as simple as that. If you give me a tax break, I’ll just take the wife to the Bahamas.”
Poore emphasizes, however, that — like the vast majority of small business owners — he isn’t among the elite class of taxpayers making $250,000 a year or more. He and his wife take in a combined $80,000 a year from their business. Teahan is an outlier, because most small businesses don’t make nearly enough to benefit from the Bush tax cuts for the wealthy.
“Most small business owners make less than $250,000 and so the tax cuts don’t benefit most of us, and they’re really taking important valuable resources away from the federal budget,” says ReShonda Young, corporate vice president and operations manager for Alpha Express, a Waterloo, Iowa-based company that specializes in transportation services and snow removal.
Young also serves on the Executive Board of Main Street Alliance, a coalition of small firms. Main Street Alliance notes that 98 percent of small businesses will not be affected by the Bush tax cuts in any way.
“The reality is that most businesses don’t pay the top marginal tax rate,” notes John Irons, an economist with the left-leaning Economic Policy Institute. “Most small businesses won’t be affected at all by a reversal of Bush tax cuts for the rich.”
For his part, Poore sees some dark humor in the entire notion of wealthy small business owners. He says that any accountant “that allows $250,000 in profit to get through to my bottom line would be fired.”
Teahan emphasizes that even the few firms that do qualify for the Bush tax cuts don’t boost their hiring in response to the Bush tax cuts. For decades, small companies have been able to secure tax breaks on the expenses that actually affect their bottom line — labor, rent, equipment, and other necessary costs. The Bush tax cuts for the wealthy, by contrast, only affect how much of a firm’s total profit owners keep for themselves.
“The economic premise, that people won’t hire because they might have to pay more taxes if they make more money, is beyond laughable,” says Lew Prince, owner of the Vintage Vinyl record store in St. Louis, Mo. “You hire when you think there’s a way you can make more money with that hire. The percentage the government takes out of it has almost nothing to do with it.”
So what really affects small businesses? High health care costs, which will likely be ameliorated by President Barack Obama’s health care reform, and limited access to credit in the wake of the financial crisis. Just as important to Teahan, Poore, Prince and other small business owners are federal economic policies that directly benefit their middle class customers. If extending tax breaks to millionaires means denying aid to the middle class, their firms will suffer.
“My customers work for a living,” Teahan says. “They’re working on espresso machines and selling coffee. They’re not these uber-rich Wall Street bankers. [My customers] need the money. If they’ve got money, then I’m doing great.”
The upper-end Bush tax cuts are not corporate taxes — they’re taxes on wealthy individuals. Many small firms are not corporations, and owners report their profits as the individual income of their owners. Some firms, like Teahan’s, choose to incorporate, though they never officially report a profit because all excess earnings are paid out to the owners. The U.S. Chamber and the NFIB say that, because these business profits are reported as individual income, allowing tax hikes for wealthy individuals will hurt small business. The U.S. Chamber declined to comment for this story but NFIB spokesman Kevan Chapman says his organization has repeatedly polled its members and found that they favor the Bush tax cuts.
“We have over 300,000 members who would disagree with the notion that we don’t represent small business. The last time we balloted this measure was in November, and 89 percent said the federal government should extend those tax breaks,” Chapman said.
There were 26.9 million small businesses in the United States in 2008, according to the Small Business Administration, though that figure includes millions of people who work on contract for employers but have no business, in the traditional sense, of their own. There were 6 million small firms with at least one employee.
Another small business groups beg to differ with the NFIB. The American Sustainable Business Council, which represents 70,000 small firms and social groups, maintains that “there is a strong business case for letting the tax relief for the wealthiest expire,” noting that doing so would “reduce the federal budget deficit and lessen the crisis with state and local budgets around the country.”
Frank Knapp, president and CEO of the South Carolina Small Business Chamber of Commerce has written on the Bush tax cuts issue for The Huffington Post. He emphasizes that many of the people who report business income on their personal income tax returns are bond traders, partners in corporate law firms, lobbyists and hedge fund managers — not the kind of activity that most people think of as “small business.”
These alternative small business groups say that the debate over the Bush tax cuts has been heavily skewed by talking points from the NFIB and the Chamber. The Chamber has a long track-record of backing the economic priorities of corporate elites, while the NFIB has increasingly become a partisan wing of the Republican Party, as HuffPost detailed in January.
While the NFIB continues to support the indefinite extension of the Bush tax cuts for the rich, it opted last year not to fight for a bill that would expand lending to small firms.
“Any small businessman who is in the NFIB is paying his enemies to stab him in the back,” says Prince, the record store owner.
Alpha Express VP Young agrees. “It’s the corporate interests and the wealthy stealing our name to further their agenda,” she argues.
While the upper-end Bush tax cuts would increase the federal debt by $700 billion over the next 10 years, the broader class of Bush tax cuts, which affect many middle-class taxpayers, would cost $3.5 trillion over the next decade, according to the Congressional Budget Office.
“We should have learned from the last decade that slashing taxes for the richest Americans is a great way to grow the national debt –- not jobs,” says Holly Sklar, the executive director of Business for Shared Prosperity, a non-partisan small-business group funded predominantly by the Ford Foundation. “Few small businesses benefit from the top rate tax cuts, but many lose from a shrinking middle class and deepening budget cuts in everything from the Small Business Administration and education to vital infrastructure repair and modernization. The tax cuts are like termites, eating away at our economy and our nation’s future.”